The business performance of car rental agencies was historically volatile. Part of this was simply due to the inability of car rental agencies to predict client behaviour. However, this did not explain all of the variance in their business performance. It was only as the rental companies began to realise that their business was not just to provide a service, i.e. renting cars, but that they also were producing second-hand cars. It was the understandable misunderstanding by the rental companies of this facet of their business that was causing them so many problems. We can learn from this. Continue reading
Author Archives: Sabah al-Binali
An Investment Analysis of Home Buying: Renting is Sometimes the Better Choice
Buying a home is an admonishment that is drummed into the heads of most people. Buy don’t rent. Renting is throwing money away. At least if you lose everything, you’ll have some place to sleep. At least that’s what people say. But is it rational? Before you decide to invest such a large amount of money, don’t you want to analyse it a bit? You know, the same way you analyse a share purchase that costs a fraction of the cost of a home? Or analyse the merits of a Samsung versus an iPhone?
I think that the main confusion is due to the fact that there are several issues interwoven into this decision. In particular, two cash flows are being net off, thus hiding a valuable insight. To understand this, consider somebody who is renting a house. He pays rent to the owner of the house which results in a cash outflow to the renter and a cash inflow to the owner. When the renter is the owner these two cash flows do not go away, they just cancel each other out. Absurd as this may initially seem, getting to grips with this unintuitive insight is key to making intelligent investment decisions. Continue reading
How a Successful Entrepreneur Learns
Successful entrepreneurs are not born, they are made. There are many different ways to learn how to become an entrepreneur. This creates the challenge of how to learn as the risk becomes that you learn the wrong things or worse spend more time learning than doing.
Formal education, such as an undergraduate finance degree at university or an MBA is certainly not enough to get an entrepreneur to the right competence levels. There are many useful, even necessary, classes that you can enroll in, but there is no career in this world that can be successfully learnt just in class. Some classes will use case studies and simulations to try and model real life entrepreneurship which are quite useful but cannot fully replicate the real world challenges of an entrepreneur.
At the other end of the spectrum is the learning by doing model. The problem is that the entrepreneur is not a student and maximizing their own learning is not the priority of their stakeholders. Entrepreneurs are responsible for shareholder and company resources and to use them to learn is irresponsible at best. A successful learning experience is dwarfed by the project or company failure that it creates. Continue reading
Passion versus Drive
“Find something that you are passionate about” is absolutely the worst advice anybody can give to an entrepreneur or a job seeker. People get a job for one reason only and that is to earn a living. Otherwise it is charity or a hobby. Sure, you want a job that is not horrible and maybe even pleasant but how much are you willing, let alone able, to sacrifice financially to find something that you are passionate about?
Similarly an entrepreneur wants to build a product or a service, to acquire clients by innovating. Being en entrepreneur in the end means delivering a superior product or service and/or a better price. These are commercial goals and they come first.
Do not misunderstand, a person’s mental and emotional health is important and should not be ignored in chasing financial rewards. The myth, however, that passion at work is not only attainable by most job seekers and entrepreneurs but that it leads to career and business success is plain wrong. Continue reading
The Information Diet: Bad for Your Investment Portfolio
They say that information is power. Data providers think so. Prices delayed by 15 minutes can usually be had for free, but real time prices cost thousands of dollars per month. Data providers and hedge fund managers will place their own servers in the same building as that of a securities exchange, just so that they can gain an extra few microseconds of an information edge over the rest of the market.
High frequency traders pay exchanges to allow them to see prices a split second before anyone else (don’t ask me how this is legal, it certainly isn’t ethical). There are strong insider trading laws banning the use of information that is obtained inappropriately, another pointer to the value of information. Continue reading
Why the iPhone is Feminist
This is going to be a short, but powerful, post.
We all know that the iPhone is a battery hog. If you use any of its features then the battery will not last for the whole day. Quite often the battery will drain even when you are not using it. This has created a massive market in mobile phone chargers.
The size of these chargers ranges from a small cigar, capable of a single recharge, to bricks that can provide four recharges to two iPhones at a time.
Men might be able to ensconce a single charge portable on their person.
Women, who are not threatened by carrying a personal container, can easily store a four charge mobile charger in their purse.
The personal advantage of women being able to communicate with the world when men have long lost their battery charge is enormous. But the true power for women comes from men requesting access to the net via their female colleague’s phone, or even more emasculating, to ask for a recharge of their phones using the second connector on their colleague’s mobile charger. Seriously, it’s like being the mistress.
Men, who have been earning far more than women not because they are better but because the world is sexist, will finally learn what it is to ask a woman to treat them as an equal.
It is not clear to me if Apple has secretly been working as the gender equaliser, or if their massive incompetence has led to this situation. A global karma possibly? Or would that be iKarma?
They say that a change in the wind creates deserts. Perhaps a change in technology can alter misconceptions held for far too long.
An economy missing half its population is running at 50% of potential. What a waste.
Scaling Profits
Why do so many start ups manage to reach cash flow break even and often manage to break through that barrier but then get stuck in terms of growing their profits much more than that?
Arguably the number one reason is that entrepreneurs have a fear of failure. This is normal, only sociopaths and narcissists feel no fear. The problem lies in an inability to overcome that fear and manage the business in way that balances fear of risk with the equally important requirement to make a return. Continue reading
Breaking the cash flow break even barrier
I recently covered the challenges of managing negative cash flows. Breaking through the cash flow break even barrier is a completely different matter. Start ups seem to reach this point and never leave it, a gravitational black hole not unlike the friend zone. Understanding this statistical anomaly requires a mix of finance and psychology.
Entrepreneurs Face Trust Challenges in the Middle East
Trust in the Middle East is based on social networks: how much I trust you depends on how often I have interacted with you and whether people I trust also trust you. Essentially, trust is a commodity that is built up over time. This model is found globally but there exist alternatives and substitute models that are applied when appropriate. One such model is the swift trust model that Americans often use when faced with situations where trust is needed but there is no time to build it up using a conventional model. This is a trust first, verify later model. A simple example is disaster relief groups which are composed from various sources who need to act immediately. This model is precisely why Americans seem to be able to repeatedly launch successful start ups, whilst in the Middle East many start ups seem stuck.
SME financing needs from management's perspective
Small and medium enterprises (SMEs) have been getting a lot of attention in the past few years. Government initiatives such as the Khalifa Fund and Dubai SME 100 complement private initiatives seeking to provide financing for these SMEs. Everyone agrees that SMEs form an important part of the economy. Everyone also agrees that supporting SMEs is challenging. That is the sum total of what people agree on with regard to SMEs.